Help! Turbotax question re maturing TIPS

[lucky penny]

I had 2 TIPS that matured in 2019, got 1099s from Treasury Direct & now I'm stymied about entering the info on Turbotax. (And I guess I'm confused about TIPS generally).

Entering the interest income from the 1099-INT was easy.

But there's also a 1099-B that gives me pause ("Proceeds from Broker and Barter Exchange Transactions"- Huh?). The 2 matured TIPS are listed as "Long-term Noncovered Securities", are described in Box 1a, and the "Proceeds" are in Box 1d. The "cost basis" box (1e) is blank. Under "Reported to IRS" (Box 6) it says "Gross proceeds."

The only place to enter this info on Turbotax seems to be in the "Stocks" section -- is that right -- but when I tried this and included my actual cost basis ($50K), it looks like the $6K increase in the principal is being taxed both by the US & the state. I thought the increase in principal isn't taxed by the state. What's the right way to handle this?

Any help or advice would be most appreciated!

 

[kaneohe]

https://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips_tax.htm

sounds like you have the right concepts (altho it sounds like the increase in value should have been reported annually). Don't know how TT works but
there should be a way to adjust the state values to eliminate their effect.

 

[lucky penny]

https://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips_tax.htm

sounds like you have the right concepts (altho it sounds like the increase in value should have been reported annually). Don't know how TT works but
there should be a way to adjust the state values to eliminate their effect.

Thanks for the link about TIPS on Treasury Direct. Interestingly it explains the 1099-INT and the 1099-OID (both of which I understand), but there's no mention of 1099-B. On the 1099-B the "Reported to IRS (Ref Box 6)" column simply states "gross proceeds". (In the section on Turbotax for 1099-Bs, there is no Box 6.)

It looks like the principal value of my TIPS had increased & I assumed the increase would be taxable by the feds (but not the state). So I'm sure it has to be reported somewhere.... just not an obvious way to do it.

I discovered that in the state section on Turbotax is a section called "Investment income from US Govt Agencies" with a place where you can enter "Other investment income exempt from NY". When I enter the $6K there & it gets subtracted from the total (but there's with no place to explain what it represents). So that seems to do the job as far as the bottom line. But there should be an easier way.

Glad these were my first & only TIPS!

 

[COcheesehead]

TT has both live and knowledge base help. Have you tried asking TT? They are the ones that would know most likely how to report.

 

[RobbieB]

Ah yes, cap gains, schedule D

 

[lucky penny]

Ah yes, cap gains, schedule D

I see that now. Since the principal increased in value it makes sense. The tricky part is making sure the gain isn't taxed by the state. My work-around gives the right result but I'm not confident that's how it should be done. It sure isn't obvious. It puts the onus on the taxpayer to know that's supposed to be tax-exempt, & if they don't they're sunk.

TT has both live and knowledge base help. Have you tried asking TT? They are the ones that would know most likely how to report.

I looked it up on their site but no success. I think I'll call TT tomorrow & find out what their help is like.

 

[thefinancebuff]

Thanks for the link about TIPS on Treasury Direct. Interestingly it explains the 1099-INT and the 1099-OID (both of which I understand), but there's no mention of 1099-B. On the 1099-B the "Reported to IRS (Ref Box 6)" column simply states "gross proceeds". (In the section on Turbotax for 1099-Bs, there is no Box 6.)

It looks like the principal value of my TIPS had increased & I assumed the increase would be taxable by the feds (but not the state). So I'm sure it has to be reported somewhere.... just not an obvious way to do it.

I discovered that in the state section on Turbotax is a section called "Investment income from US Govt Agencies" with a place where you can enter "Other investment income exempt from NY". When I enter the $6K there & it gets subtracted from the total (but there's with no place to explain what it represents). So that seems to do the job as far as the bottom line. But there should be an easier way.

Glad these were my first & only TIPS!

The OIDs you counted as interest over the years increase your basis. You shouldn't have much or any capital gains when you held the TIPS to maturity. Get all the OIDs for each year. Add them to your original purchase price to get your basis.

https://www.hrblock.com/tax-center/irs/forms/original-issue-discount-oid/

 

[lucky penny]

​

The OIDs you counted as interest over the years increase your basis. You shouldn't have much or any capital gains when you held the TIPS to maturity. Get all the OIDs for each year. Add them to your original purchase price to get your basis.

https://www.hrblock.com/tax-center/irs/forms/original-issue-discount-oid/

Wow, thank you!!! Those OIDs really add up & it's nice to know I don't have to pay taxes on the gain at maturity since I already did. (Unfortunately I no longer have my tax records from the first 2 yrs of that 10-year period.)

Here's an explanation I found that really makes sense to me:

"The TIPS bond pays a semi-annual coupon rate of interest in cash and also adds an adjustment to the principal value for the CPI (Consumer Price Index) inflation or deflation that period. The bond holder is taxed currently on the CPI adjustment, even though it is not received in cash. This CPI adjustment is called "phantom income" because it is income you have not yet received in cash, but you still must pay income tax on it now.

No income tax is owed when you collect the CPI inflation adjustments at bond maturity, since you have already been taxed on the adjustments each year over the life of the bond.

To determine your cost basis for a TIPS bond, you must record the phantom income each year as an increase in your cost basis. The phantom income is reported as "OID" or Original Issue Discount on your Form 1099 by the broker/dealer holding your TIPS bond. If deflation occurs, the adjustment will be negative. A special feature of TIPS bonds is that the principal value at maturity will never be reduced below initial par value for CPI deflation adjustments.

Because of the complications of phantom income and OID adjustments, many people avoid the whole thing by only buying TIPS inside their IRA so they don't have to worry about keeping track of the cost basis." (Now they tell me!)​

Thanks again to you tax experts for being so helpful.

 

[kaneohe]

Are you sure you have been reporting the OID annually and have they been showing up in your income (does TT do that) each yr?

 

[lucky penny]

Are you sure you have been reporting the OID annually and have they been showing up in your income (does TT do that) each yr?

Yes, I always reported the amounts listed on the 1099-OID. I was puzzled the first time I got one of those from Treasury Direct, but TT has a category for this in the Income section so it seemed obvious it should be reported. And now I understand why!